Choice of life insurance policy depends on objectives

This article was provided by Timothy M. Reese, senior vice president-investments with A.G. Edwards & Sons.

Deciding which type of life insurance best suits your needs depends greatly on your personal situation. Of the many types of policies currently available, the two basic types are known as term insurance and cash-value insurance.

The main difference between the two is that term policies are only designed for a specific period of time, while cash-value policies can help you accumulate long-term savings.

If your primary reason for purchasing life insurance is to protect your family for a certain period in case of an unfortunate event, term insurance will likely offer the coverage you need.

Just as the name implies, term life insurance offers a death benefit for a specified period of time. For example, if you buy a policy with a 10-year term, you are covered for 10 years. Once the original term ends, you must renew coverage for the policy to remain in effect. Keep in mind that the younger you are, the lower your premiums will be, so you can usually purchase a substantial amount of coverage at a very affordable rate.

Another type of life insurance that adds the potential for savings or an investment vehicle is cash-value insurance. In addition to death protection, these policies enable you to build up a cash value within the policy.

By using these policies, you can save for future financial needs while still benefiting from insurance protection. There are several types of cash-value insurance policies available, and it is important to select the one that will best suit your particular needs:

Traditional whole life Fixed premium costs for the life of the policy are the trademark of traditional whole life. The insurance company's portfolio of long-term securities typically bonds makes up the backing for this type of policy. Earnings accumulate on a tax-deferred basis and the death benefit to beneficiaries is income-tax-free.

Survivorship life Usually used as an estate-planning tool, survivorship life covers two lives with one policy. Proceeds are paid to the beneficiary only after the second policyholder dies.

This type of policy is designed to provide cash to one's heirs to cover the cost of estate taxes. You will typically pay lower premiums than you would if you and your spouse purchased separate policies.

Universal life The flexible premium of a universal life policy allows you to increase, decrease or sometimes even skip a premium payment without having to cancel your policy or take a loan.

Premiums are deposited into a cash-value "accumulation account." The cost of insurance is then automatically deducted monthly from your accumulation account. Therefore, while you do have a great deal of flexibility in how much you pay and when, you do need to make sure there is enough in the policy to cover the cost of your premiums.

With this type of policy, the assets in your account compound without current taxes, and you generally have the opportunity to earn a higher return than a traditional whole life policy.

This tax-free accumulation makes universal life policies potential tools for both protection and financing your long-term goals, such as saving for a child's education or funding your retirement.

While this is just a brief summary of some of the different types of life insurance available, your financial consultant can explain all the options to you and help decide which one best fits your needs.

A.G. Edwards does not render legal, accounting or tax preparation advice. You should consult your tax and legal advisors for your specific situation.